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NBN pricing speed bumps could slow digital development

MARK COLVIN: A leading telecommunications economist warns that NBN Co's pricing policy will undermine the economic benefit of fast broadband.

John de Ridder, a former chief economist at Telstra, says NBN Co's decision to offer slower speeds at lower prices means many consumers won't take advantage of the network's true capacity.

He says that means the nation won't reap the full economic rewards of its investment in high speed fibre to the home broadband.

But other analysts and NBN Co itself say baby steps are needed to encourage consumer take-up in the early stages.

Business reporter Michael Janda has more.

MICHAEL JANDA: The National Broadband Network promises speeds of up to 100 megabits per second but not for everyone. The NBN Co is offering five different speeds at different prices.

JOHN DE RIDDER: They could offer the same speed, unlimited speed basically, to everybody but they choose to ration it out charging more for higher speeds.

MICHAEL JANDA: That's telecommunications economist and consultant John de Ridder.

NBN Co sells wholesale access to the internet service providers and that access is currently priced from $24 a month for the slowest 12 megabits per second plan to $38 a month for the top of the line 100 megabits per second download speed.

For end users, that means monthly NBN broadband plans start from around $30 a month for the slowest speed to at least $50 a month for the fastest.

John de Ridder says that's a big problem if the NBN's aim is to get more Australians onto high speed broadband and transform the nation's digital economy.

JOHN DE RIDDER: They need to recover their costs efficiently and one way of doing that is by price discrimination, but they've got the wrong idea. People are not going to be prepared to pay more for speed. They don't do it now.

What they're doing is replicating the existing situation where a lot of people have access to more broadband speeds than they are prepared to pay right now.

It would be much more simple to basically charge per gigabyte of data delivered over the NBN network, just as you do with gas and water. It is a utility now. It's a public service.

MICHAEL JANDA: Mr de Ridder says the NBN could be a waste of $40 billion if the pricing model encourages most households to take up the 12 megabits per second plans which are similar to the ADSL broadband many people already have.

JOHN DE RIDDER: This pricing part is an important step towards making sure that we actually get use out of the network, which is where the benefits come.

MICHAEL JANDA: But NBN Co's chief executive Mike Quigley says a lot of people wouldn't take up the company's service at all if it only offered the highest speeds at a price to match.

MIKE QUIGLEY: Not everybody will want the same speed plans. Some people will just want, for example, a plain old telephone service. You know, it doesn't make much sense to offer them a 100 meg. service.

We talked extensively with our potential customers and retail service providers about what are the sorts of tiers that make sense and what sort of product offerings, and this is what we thought was the right answer.

MICHAEL JANDA: Telecommunications analyst Paul Budde says he doesn't mind NBN offering cheaper slower speed wholesale plans now as long as they adapt over time to the increasing speed needs of new applications.

PAUL BUDDE: The need of high speeds other than use for entertainment will automatically grow and it's in the Government's interest to facilitate that. So while that's not in place now I am pretty sure that either through the regulatory process or through the political process it will be made sure that we do get the right speed at the right time and that we are not limited, artificially limited by the speeds that have been set up now.

MICHAEL JANDA: But Mr Budde says the lowest of those artificial limits could already be removed.

The 12 megabits a second slowest speed was set to equal the speed remote satellite and wireless customers could expect so that users would pay the same price for the same speed.

But the NBN Co has signed new satellite deals that have more than doubled remote download speeds.

PAUL BUDDE: Now there is no longer a political need for the Government to limit it to 12 megabits. You know, that was politically needed to say everybody gets the same, at the minimum get the same service yeah. Now the Government can safely say the minimum service can be lifted to 25.